As RBI frees money, banks may lower lending rates

Soon after the RBI unveiled its mid-quarter review of the monetary policy, several bankers hinted that they may reduce lending rates in the coming days.

NDTV | Last Updated: September 18, 2012 17:51 (IST)

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Mumbai:

Borrowers could see better days ahead as banks are expected to cut lending rates following the Reserve Bank of India’s decision to unlock Rs 17,000 crore by slashing cash reserve ratio (CRR) by 25 basis points.

Commenting on RBI's action, State Bank of India (SBI) chairman Pratip Chaudhuri said the bank will review its rates in the light of policy decision. The asset liability committee (ALCO) of the bank is expected to meet soon to take a view on rate revision.

"It is a very positive move. I think the RBI has given a clear signal that they (banks) are willing to respond and that they (banks) have taken note of the signs of deceleration in economy," Chaudhuri said.

He was seconded by Chanda Kochhar, chairman and managing director, ICICI Bank, who called "the reduction in CRR a positive step as it will help ensure that systemic liquidity remains in the comfort zone".

"Given the comfortable liquidity and the recent reduction in deposit rates by banks, interest rates in general could be expected to trend downwards gradually. However, we will have to continue to keep an eye on funding costs given the level of CASA deposit growth in the system," she said.

RBI today announced a cut in CRR, the percentage of deposits banks keep with central bank, to 4.5 per cent.

However, repo rate, at which the central bank lends to the banks, would remain unchanged at 8 per cent.

The reverse repo, at which it absorbs excess liquidity through borrowings from banks, remains at 7 per cent.

Terming the policy action strongly positive for the markets, Bank of Baroda chairman and managing director M.D. Mallya said as much as Rs 720 crore of additional fund would come to the bank.

The liquidity infusion would ensure adequate flow of credit to productive sectors of the economy, Mallya said, adding that the bank's ALCO would meet soon to take stock of the situation.

Oriental Bank of Commerce (OBC) chairman and managing director S.L. Bansal also said that the bank would take a view on the rate revision in its ALCO meeting soon.